Will DuPont and Huntsman Bounce Back?
However hard the market slams a stock, there's always the chance it'll come bouncing right back. We'll consult our Motley Fool CAPS community to find shares on the rebound, examining one specific sector of the economy in search of companies with rising CAPS ratings.
There are 90 stocks listed under "chemicals" in the CAPS' screener, of which only a dozen carry well-respected four- and five-star ratings. Those accolades mean our 180,000 CAPS members are confident that these stocks will beat the market in the months ahead, but let's see what members are saying about the ones below:
CAPS Rating (out of 5)
52-Wk. Price Change
Est. 5-Yr. Growth Rate
|DuPont (NYS: DD)||****||$51.95||(5%)||9%|
|Huntsman (NYS: HUN)||*****||$14.30||(23%)||16%|
Source: Motley Fool CAPS.
International and financial worries still grip the market, but with the S&P 500 rising almost 5% over the last 12 months, it may be surprising to learn that CAPS chemicals stocks have climbed nearly as much, rising 4% in that same time span. So let's take a closer look at why investors think these two companies that exceeded the market and their industry won't be jumping from the frying pan into the fire now that the markets are on a roll again.
Lighter than air
Agricultural products aren't typically the first thing that comes to mind when DuPont is mentioned, but corn and soybean seeds are among the biggest products it has and the segment is the company's largest, with almost $9.2 billion in sales last year. Like Monsanto (NYS: MON) and Syngenta (NYS: SYT) , it expects Latin America -- particularly Brazil and Argentina -- to be a big source of momentum for its crop seeds.
According to Celeres Agro Consulting, genetically modified corn has already penetrated 60% of Brazil's crop, but Monsanto owns some 40% of Brazil's market and half of Argentina's. DuPont is counting on new product introductions and recently secured EPA approval for its new AcreMax XTreme to help it gain on its rivals, and will begin testing these products in plots across the U.S. and Canada.
Shares are up 16% so far in 2012 and have risen more than 42% from the lows they hit back in October. With 1,776 CAPS members weighing in on this diversified chemical giant, 94% see it continuing on its current growth trajectory.
On the prowl
Huntsman also has an international growth component tied to its investment thesis, but it's the ability of global economies to recover that defines its prospects as opposed to expanding into new markets. Almost 70% of its sales are derived from outside the U.S., so the financial and economic health of China, Germany, and other countries is going to weigh heavily on its outcomes. It's not alone in that regard, as Dow Chemical (NYS: DOW) also generates only about a third of its sales from the U.S., but as Huntsman is still something of a turnaround story, having shed low-margin business in an attempt to improve profitability, I'm leery of an investment here than in DuPont, if only as a short-term concern based on Europe's malaise.
Huntsman's shares have had an even better 2012 than DuPont, soaring 47% in the first quarter. While its market multiple is at a discount to its rivals, as Motley Fool blogger Paula Pant remarks, there may be a reason for that premium.
Dow's moat comes from its market dominance: competitors like the Huntsman Corporation, which also manufactures chemical products, aren't playing in the same ballpark. Huntsman has a market cap of $3.2 billion, while Dow Chemical is twelve times larger, at $40.1 billion. The two companies aren't even in the same decimal-point range.
While I have an outperform rating on Huntsman on CAPS, it's based on the long-term growth story for the specialty chemicals maker. If you've got a long enough investing horizon, then it's still early innings for the chemicals specialist. Add Huntsman to your Watchlist and let us know in the comments section below whether there's something special about this chemical company.
The ball's in your court
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At the time this article was published Fool contributorRich Dupreyholds no position in any company mentioned.Click hereto see his holdings and a short bio.Motley Fool newsletter serviceshave recommended buying shares of Syngenta.Motley Fool newsletter serviceshave recommended creating a synthetic long position in Monsanto. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.
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